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What is a payment gateway?

In eCommerce, there are several fundamentally important aspects of the online store, and one of the most important of those is the process of accepting payment from customers for the goods or services offered by the store. The system through which the payment is processed is often called a Payment Gateway, which is nothing more than a label used to describe the system that handles the transfer of money from the customer to the store owner. When setting up an eCommerce website, it is important to understand, at a minimal level at least, the various components that make up the system. This article will help you better understand the specifics of a payment gateway and the role it plays in your store.

Wikipedia defines a payment gateway like this:

A payment gateway is an e-commerce application service provider service that authorizes credit card payments for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar.

A payment gateway facilitates the transfer of information between a payment portal (such as a website, mobile phone or interactive voice response service) and the Front End Processor or acquiring bank.

In simple terms, a payment gateway is the system that works behind the scenes to accept the payment from a customer and then facilitates the transfer of funds to the store owner’s bank account.

For most eCommerce stores, there is a three part relationship between the store, a merchant processor, and the owner’s bank account:

  • The online store handles the order process and the collection of the customer’s payment details.
  • The merchant processor handles the processing and transfer of the payment.
  • The owner’s bank simply receives the funds.

The merchant processor is a service that handles the actual funds transfer and is responsible for charging credit and debit cards. Merchant processors can process payments in a variety of ways and are not limited to credit or debit cards. Other methods could involve direct bank-to-bank transfers (ACH), intermediary holding accounts, and even mobile payments. Examples of merchant processors include,, PayPal, and 2Checkout.

The typical process works something like this:

  1. The customer selects the product(s) to purchase and visits the checkout screen of the website
  2. The customer enters their payment method details (credit/debit card, PayPal account, or similar)
  3. The payment details are sent to the merchant account for processing (Stripe,, PayPal, etc)
  4. If the payment is accepted, the customer’s order is completed and the customer is given access to the items purchased
  5. Purchase amount is deposited in store owner’s account (can take seconds or days)

Aside from handling the transaction processing, a payment gateway has several other important functions.

First, payment gateways are designed to keep customers’ information confidential and secure. In the best payment gateways, the customer’s payment information (credit card number and details, for example) never touches the server on which the website resides nor is the information ever made available to the eCommerce store’s owner. The information is kept safe, secure, and confidential on the merchant processor’s systems.

Second, payment gateways are created to make the handling of payments simpler and easier to set up. Before services like, PayPal, and were available, setting up a merchant account to process credit and debit card payments was an extremely difficult, long, and labor-intensive process. Now it is as simple as registering an account, connecting your account to your eCommerce website with a few simple settings, and you are ready to go. Before it could easily take weeks or months, now it can take less than an hour.

Third, by offering a large selection of payment gateways, eCommerce systems such as Easy Digital Downloads can be more easily accessible and available to store owners around the world. Since not every country has the same level of advancement in payment processing technology, it is vital that a wide and diverse array of options be made available.

Nearly every online store requires a payment gateway in order to process payments. If you are in the process of setting up your online store and are not yet sure which merchant processor you should use, one of the first steps is to determine which processor integrations are offered by your eCommerce system. Here at Easy Digital Downloads, for example, we offer more than 40 different payment gateways through our extensions catalogue and many more through 3rd party developers.

There is no single rule or guideline for choosing a merchant processor and gateway, but there are several common factors to consider:

  1. Is the merchant processor available in your country of operations?
  2. Does the processor support all necessary billing features (one-time transactions, recurring billing, pre-authorized charges, etc.)?
  3. How do the fees compare to other merchant processors?
  4. Does the eCommerce system you are using support the merchant processor you wish to use?
  5. Is your business compliant with the processor’s Terms of Use?

Choosing a payment gateway can be one of the most important decisions you make when setting up your store, so it is important to consider the options carefully.

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  1. Pippin Williamson

    Thanks Pippin. Are you going to include Stripe for free like WooCommerce did? I think PayPal has a lot of drawbacks as a default payment gateway even if customers are expecting it. People think they need to create an account for example and PayPal standard is a bit messy.

    1. Pippin Williamson
  2. Pippin Williamson
  3. Pippin Williamson

    I created a new ecommerce website using WordPress and WooCommerce. We added EDD to handle our instant digital download items for our customers. After our site was up and running for a week, we had our first sale. But that was several weeks ago and we still have not received the payment for that sale. Granted it was only $5.95 but it is out there is cyberspace somewhere. I have looked through countless articles, posted questions on numerous groups to get help, sent emails, etc. but no answers as to what to do. We had set up PayPal standard and followed all of the guidelines from EDD and PayPal to set everything up. We even ran a test purchase to check out that all went as expected, which it did. Today we had another customer try to download another instant file. They received 2 emails related to the purchase but no download link in either email. I am at a loss as to what to do or who to talk with so I am asking you, what to do next. Thanks for any help! ~Kathy from

    1. Pippin Williamson
  4. Pippin Williamson

    With payment processing the thing that troubles me is just how secure are our personal information when they are submitted. Since we do payment processing day-to-day so it is important to a minimum the we have an idea how it functions.

    1. Pippin Williamson

      The exact methods of securing the information varies depending on the payment gateway. All of our gateways are built to be secure and to protect the private data.

      I would personally recommend as your merchant processor. They are one of the most secure, easy to use, and reliable providers.

  5. Pippin Williamson

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